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Friday, March 23, 2012

If you read the articles posted on the previous thread, then you will begin to understand traditional charting technologies are becoming worthless. As the market manipulators continue their intereference (HFTs) the market will over the short term do what they want. However, over the long term, they can't, because over the longer term, the pushing the market around won't work: fundamentals will cause the prices to move where investors feel they should be. Like today, the P/E for AAPL is much smaller than what many analysts believe it should be, so in the longer term, AAPL is likely to correct to the upside (buy on any pullback). Now, longer term trend following will make you money, not short-term daily trading.

So I thought I'd post a few charts in which we have some mutual interest. First, the SPY on the weekly timeframe:

As you can see, we're in an upchannel. This is the basis of Mutt's call that we will have a 2000 point run in the DOW. Now, in the shorter term, the SPY on the daily timeframe with the overlay of the weekly channel markers:

If the trend continues on the downchannel, we could expect a reversal where the daily downchannel intersects the weekly upchannel. However, being trend followers, we'll follow the downchannel daily trend until it breaks out. We may have to redraw the weekly upchannel, depending on when it decides to break out.

So here's the weekly SLV:

Looking at the weekly, I think we don't need to redraw the daily chart, it seems to be headed down to it's lower weekly downchannel, around 23 and change. However, if it breaks out of it's current channel, a new weekly upchannel would be drawn starting around Dec/E and upwards, incorporating our current downchannel trend. I previously commented that I might nibble on Silver, but looking at these charts, I think it's too soon to take it seriously. (I typically don't short anymore because of the costs to borrow the shares). The other question to seriously ask is why, when the overall market trend is up, is the SLV on a dwwntrend? SLV gets used up in manufacturing processes and catalytic converters, and unlike GLD, goes away unless the miners dig up more. You'd expect a long-term upchannel.

Anyway, because of the HFT's, I'll miss the daily and sometimes hourly moves. The reason my trades were losing money is that I would wait for a trend to be clearly established, and by the time I made my trade, the trend was over and the algos reversed the move. So I've been making longer-term trades, and even though the overall market is going lower, I've made 2.77% in 3 days. With much fewer trades.

The bloomie segment was very short. They focused on the way the HFT's are making money, and how one firm has captured 11% of the entire trading volume of both exchanges.

The SEC is investigating. If this volume is big enough, short-term ticker trends can be manipulated. For example, if you see AAPL trading and you wish to enter a position, the HFT may be flooding the SEC with bogus orders for AAPL, delaying your trade. If your trade is a buy, they may buy stock for your order, delay the market as AAPL goes up, and sell your shares to you after making a profit. You pay more, and the HFT gets the difference. Depending on the volumes being traded, the next person that generates an order may be at a price point he didn't expect.

Hey friends. Thought this little piece of news from my side of the pond, which went unnoticed, was worth pondering:

"French financial markets watchdog AMF has fined Societe Generale and BNP Paribas 500,000 euros ($659,500) each for failing to ensure confidentiality of information when testing investor interest in bond sales made by Saint-Gobain and Schneider in 2009.(...)

The watchdog also fined Allianz Global Investors France 150,000 euros and one of its portfolio managers 10,000 euros for using the information in trades on Schneider Electric debt."

What disturbs me is not so much that this kind of thing can happen, as how minor the world of finance sees it. I mean, shouldn't the headline read something like "case of insider trading over big French companies' debt" ?

Obviously, no one sees this as insider trading. Must be missing something here..

WolfStreet - Could not agree with you more, it is not that it is happening, but that it is brushed off so easily.

They are stealing and so are HFT Rock has laid HFT out in detail many times and if someone like him, who has no "Hands On" knowledge or special training in spotting fraud can clearly explain how and why it is wrong, than why doesn't the SEC actually do something about it.

Again, it is not that people are trying to cheat the system, that is human nature that happens, it is the fact that the people put in charge of making sure the cheating gets stopped, do not do their jobs.

Teachers know kids are going to try and cheat on an exam, they probably have a good idea of who to suspect too and if they get caught they should be punished - Not rewarded.

The problem with HFTs is they are being used (by whom, you might ask) to limit big market moves. Yesterday, (friday) at 9:57 or so, there was a huge (and I mean huge) volume of buys over 800 stocks, at the same instant. These orders were used to stop a low-volume fall of the market. Take a look at the SPY with volume at this time.

If you're really interested, see WWW.hftalert.com. I subscribed for a couple months, but it didn't tell me anything I couldn't see by looking at the volume bars and when they peak well beyond average, the bots are acting in unison. At somebody's direction (I wonder who).

So without the HFT's manipulation of the market at 9:57, it may be we'd have finished the day a lot lower than we did.

Is this manipulation good? or bad? I dunno.

Is it unfair to investors? I dunno.

Is keeping the market up artificially bad for our and the world's economy bad? I dunno.

Do investors pay for it? Yes. I know that. Investors pay a tiny amount on each transaction. And most don't even know it because their "market" orders get filled at basically where they expect them to be filled.

It may be better to figure out how to keep "I wonder who" out of the market.

Above you say you are not sure if the HFT manipulation is good or bad, in my honest opinion it is bad and my reasoning is, it is not natural and eventually someday there will be an event, what event that is is anybodies guess.

But someday something will happen that the HFT did not know to plan for (And we can kind of see it in the flash crashes)and the false bottom will give out and since there is little to no real structual support holding up the market, the real question should be, how far does it fall?

Now, in order to extropolate further on these "guys who may be selling the world": I guess the big money keeps elaborating ever more sophisticated algorithms, based on evolving "models". In the end, maybe their stuff becomes understandable by no one, not even those who created the programs.

Can't we, then, imagine that this would be the perfect place to "hide" some crypted mechanism ? Like some kind of "key", that funds can share with each others, which in the end triggers some kind of collective behaviour ? That is, highly sophisticated cheating, buried deep inside those 0 and 1's

You say hedge funds don't do well when there's an up up and away market? You say they kind of need volatility? End of quarter is fast approaching. Bloomie said that we may see hedge funds starting to buy the best sectors in order to build up profit numbers. Running my herds relative strength, that's financials, consumer services (UCC) and techs.

So if you want to enter now, you might look into these sectors, or ETF's for lower volatility.

UCC XRT RTH IBB XLF XLK

The other sector that according to my relative strength charts is doing quite well are the biotech IBB and BBH

Rock - Personally, I think you did fantastic concidering what you were up against.

And I (And I am sure others) got a chance to learn a little too.

I have personally given up on TA at this point, now don't get me wrong, I think it is a valuable tool, but at this point I believe TA is not the right tool to be using in this market.

On the other hand, I have started to concider going with trends, like SLV, which has done ok so far, but I like your thought process on hedge funds and will check out the ETF you put up.

Again any move I make will be for chump change (If I even break even) but it is all about learning and the markets always change in one way shape or form, so hopefully I will start to learn to recognize what I am seeing.

I read an article the other day that said over the last 6 months, every time DeMark's system showed an event would happen, the bots broke it.

I don't know too much about DeMark, it seemed to me after studying it that there was too much grey area around what is a move, and what is not, and the counts of what was a move last time isn't a move this time, kind of screwed me up. So I gave up on it.

But I still use the standard stuff, plus my relative strength thing, as TA to tell me when to buy. For example, my analysis told me to buy KSS, and TA told me it was breaking above it's 5 day Exponential Moving Average, so I just bought my entry (small number of shares). If the TA says it finishes higher today, I will add at the close.

Have a look at UUP. UUP has been in a (broad) upchannel for a long time, but it fell out of it's upchannel around Feb 1. Then it rose until it hit the bottom of the upchannel where it fell, rose, and is falling now for the last 10 days.

I know we shouldn't trade UUP because it is mainly the policy makers that determine the value, but it's interesting that it appears we've forgotten about grease, Portugal, Italy (who recently said they were toast to meet their plan).

I think long term, bucky's going to gain strength which will push against Bernank's lower dollar policy.

Readers price point will be $50 in the future. This will help your college-bound kid, he/she won't have to buy anapple. The kids will get their textbooks license and either download the books or license and read them.

I always felt so violated by the coop.

Now they can sell the sweatshirts and shotglasses, and the walnut frames for the diplomas.

You know, I wonder where my diplomas are. Somehow, I never did the walk in the cap and gown, for any of the BS awards, I either had to work or had to be out of country.

Rock - Even with the camera on my cell phone, I still do not take pictures.

My youngest son was born just as digital cameras were starting to get good and fairly inexpensive, but I had a nice 35mm camera and took TONS of pictures of him, but there they sit taking up an entire drawer in the china cabnet.

Mutt: Yeah, I know what you mean. I scanned all my pics (lie, I paid my semi-useless son to scan them) and now have them backed up on HDDs. I put them in directories with time/meaning and use a screensaver to scroll through. I just select different lists and the screensaver reminds me of the event.

Digital media is quite useful.

I don't often play the directories of my arrest, trial, and incarceration......

I am not sure I can handle something more complicated then Archie & Jughead, well and of course Spiderman :)

On a serious note, does he actually have a workable plan that does not require a huge reset button?

With the U.S. Goberment (which is us - We elected them) deeming banks "To Big To Fail" then stealing our money to give to them, then allowing them to blow another bubble with student loans (Reaching upward to 1 Trillion dollars) These loans can not be defaulted on, but many of these loans will not be able to be paid back.

Well that leaves us the tax payer liable to get taken advantage of again by the TBTF banks.

With QEezzing and HFT ruling the market.... and those a just a few of the manipulated games that we have discussed here.

With all that and so much more, do you believe it is possible to Fix this mess? And even if it were (Which I believe it is) possible, do you believe there is the will (Which I do not believe there is) to fix it?

Much of my career has been working as a janitor. As a result, I believe anything can be cleaned up and fixed. I think the first step is to get the word out to young people before they get, um, tainted? bought? disenchanted?

WolfStreet Says: March 29th, 2012 at 7:31 amre:Union Agitator,March 28th, 2012 at 5:14 pmOn the (off-topic?) topic of “manipulation”. I dare quote myself, from some other blog“Now, in order to extropolate further on these “guys who may be selling the world”: I guess the big money keeps elaborating ever more sophisticated algorithms, based on evolving “models”. In the end, maybe their stuff becomes understandable by no one, not even those who created the programs.

Can’t we, then, imagine that this would be the perfect place to “hide” some crypted mechanism ? Like some kind of “key”, that funds can share with each others, which in the end triggers some kind of collective behaviour ? That is, highly sophisticated cheating, buried deep inside those 0 and 1′s”

WolfStreet Says: Your comment is awaiting moderation. March 29th, 2012 at 7:45 amWhat I was trying to describe above, about the “key”, was some kind of “SSL” mechanism thing. That is, you’ve got a “key” (a value, number, text, whatever..), that triggers some behavior that you’ve coded into you stuff. Since no one understands your stuff to being with, I guess it can you can code some part of your logic along untold rules..

Again, as mentioned also on the aforementioned blog, what I’m talking about here is just kewl Scifi scenarios.

WolfStreet Says: Your comment is awaiting moderation. March 29th, 2012 at 8:01 amc’mon Friends! I’m looking at the status here, and I don’t think this should be rejected. Just hypothesizing here. We all do.?

Sorry, got busy this AM and couldn't comment early. Were all those comments stuck in our queue somewhere? I looked around and couldn't find any. But I'm not Thor. He's the blogger expert.

As I commented before, much software does have backdoors. You need to determine the integrity of your application providers to determine whether you trust them or not. For example, I have accounts at several brokerages, and I don't believe in the integrity of some, like Scottrade.

You can check for backdoors as follows: 1. Get APORTS.EXE from Sysinternals (Microsoft subsidiary, Mark Russinovich) and run that (that one's safe). then run one of your applications at a time. If you see a port open then close, it's possible that software has a backdoor. If you see a port open then close repeatedly over time, it's highly likely that software has a back door. Contact that software vendor and ask the purpose for that port. If they give you a non-answer, block that port with your firewall. (some software looks for updates, this is a kind of useful backdoor, but a backdoor nonetheless).

If after boot you see a port open and close, you probably have a driver or startup program with a backdoor. To understand that, you'll have to find out who opens that port. Get a forensics expert to look at the boot process (he would likely use ProcessMonitor from Sysinternals) to see what process opens the port first. I've seen processes open and close a port during boot then destroy themselves so they can't be found by a Norton or firewall later.

And if you're really somebody, your corporate IT should have a lockdown on all software in your company with CRC's for every module, and you run a CRC check as a rootkit and if anything's changed, the computer boot process is terminated and the IT guys are summoned. That's what we have. Which is why it takes us so long to move to a new OS (I just got on XP a few months ago).

@WolfStreet:Forgot to mention: most serious compromises are due to physical insecurity. examples:1. You leave your machine unlocked while you go to lunch2. You leave your notebook on your passenger seat and it gets ripped off3. You don't encrypt your data file directories using Truecrypt and somebody breaks in to your house and steals your computer4. You give your password to your secretary5. Your IT manager gives the server admin password to his girlfriend during orgasm

@Wolfstreet:Forgot to mention also:We almost never see any software writing it's own stack anymore, except for stuff you might download from www.sex.com or something like that. Everybody is using the stack being provided by the OS. That means that unless you go underground, you're pretty safe to use APORTS for detection. Run a good firewall. Norton is the only one that works, everything else out there is mee too and behind Norton's releases (they see the changes reverse engineer them and re-release their software). Most people do not run good security software, and they become the low-hanging fruit which gets picked. Because of that, if you run Norton, you are most probably safe because the bad guys will just go elsewhere.

I know the company well. Foxconn has set up lines where other companies like HP, Dell, Denovo have paid for facilities development (clean rooms etc). AAPL's margins have improved as a result.

Any company would lick boots to get AAPL business, so Foxconn has been especially nice to them. So expect the margins of HP, Dell etc to get squeezed, and AAPL to continue high or higher profits if and I do mean if, Foxconn does the HR improvments they promise. Of course they might not.

BTW, the Foxconn facilities and work environment beats almost every factory I've visited in China, Malaysia, VietNam, Cambodia, Indonesia. I haven't visited any in India, but from what I hear, Foxconn's way better.

I was stopped out of AAPL the other day, and I almost re-entered but hesitated. Good thing. I saw an article somewhere where a pullback target is 575. I'll be watching to get back in.

Here's another article:http://www.forbes.com/sites/greatspeculations/2012/03/30/its-death-by-apple-for-best-buy/?partner=yahootix

A friend of mine owns a company whose primary customer is AAPL. In a recent meeting, he was told he must cut his costs by 5%. He said no, the margins are too thin to cut 5%. They told him he would be getting no additional orders.

It' the same old story. AAPL will find somebody who says "I can do it for that" and will fund their special manufacturing needs, the company will make a profit short term, then go belly up.

@WolfStreetI like to read all comments. Helps me understand psychologicals, and often adds to my trading knowledge.

RE: young peopleI don't want to appear negative on young people. I think that group is showing around 50% systemic unemployment (take away students segment) and I believe we're not doing enough to present opportunities to them. I happen to believe that's a bigger problem for us to face than the current unemployment population, because they are our, and their future.

I believe one of the reasons for the systemic unemployment is their willingness to press the reset button, and employers want to see commitment, not the willingness to bail. But I also think that may be an opportunity for employers to see what's likey successful in that market. I don't use facebook but I'll bet there's no button to press to remove my friends, allowing me to build another community.I think there's things the employers can learn from that segment, and haven't.

By no means am I at the Old Coot stage of life yet, but I have to say your analysis of the younger generation is pretty good.

I think part of the reason they are willing to "press the reset button" so quickly is youthful optomism and when there were plenty of job oppertunities they were able to get away with saying "I am not going to take this crap".

I also believe another part of it is, they expect to be intertained, they can reset their game characters eazy enuff and society has lead them to believe they are entitled. Which is not such a good thing.

Right now, I don't like any of the short leveraging products which would be designed to go up when the market goes down. The other day I got the perspectus for SDS. The leveraging techniques are really weighted such that it's lots easier for that product to go down than it is to go up.

Looking at VXX, I ran some quick % gains versus losses when the SPY was going up and down. Of course I know the VXX is tracking the S&P futures, but the % gains and losses were significantly disadvantaged toward the VXX.

I think if you're inhterested in a long-term buy and hold position, SH may be a better candidate. If you want to capture some instantaneous fear, maybe for a day or two, I'd look at the news and make a trade in the VXX for at most a couple days.

Gotta love it. Any hint by the Fed that more pump priming of equities MAY not be (yeah, right, whatever) coming and the HFT bots (I mean, "market", whatever) throws a fit. The farce continues unabated. Anyone else STILL think we're dealing with a real, unmanipulated "market" here better get real real quick. The FED and other Central Banks ARE the market now. Have been since the "recovery" started in March of 2009. Looks like I should have nibbled on VXX. Sigh.

I got busy at work and haven't been able to trade or follow the market the last couple days. This morning on Bloomie, the THs are saying that a correction is coming. But they been saying that since, let's see, January?

Today we have a pop in materials. I believe it's false. The other day we had a pop in the new homes builders, and I shoulda said I believe it's false, and it was. There's not enough jobs out there to support new homes. I've been helping a friend redo his kitchen, and there's quite a bit of that going on now, but when I travel down the aisles of Home Depot, they're sooooo vacant of people. We called a plumber to cap off a gas line, and he said "I can be there today". You ever ever hear of a plumber being available *that day* without an emergency?

I think the "economy recovery" may be running out of gas. We still haven't gotten to Mutt's 2000 point rally point, and I was surprised to see Ben's Boys say "enough" before we got there.

I'm watching UUP get stronger. No offense, WolfStreet, but I think the Euro budget troubles aren't over yet, and I think that the US is only a few years behind.

But I play the tape, and the SPY's just at the lower edge of it's upchannel right now. Means to me we may see a pop, so if you're thinking of shorting, make sure your buy stops are tight and decide the amount of money you can lose.

I'm still playing the long side. I added to PANL on the pullback, and it's doing quite well.

By the way. market's closed tomorrow for passover. I'm going on a minivacation to visit my daughters in NY and have to stop by the office in Washington on Monday, so I'll probably be busy. Trade well. I hope you bought AAPL on the pullback like I did.

I would also surmise that the main reason the market isn't 10-20% (or more) lower is the looming presence of the Fed and assumption that it will step in whenever any hint of weakness presents itself. It's Greenie's Put on steriods, HGH, meth, and a little caffeine.

When we are growing up there are tons of monumental occations we look forwards to 16 and driving, 18 and getting to sign up for selective service....Oh wait that's probably not one we look forward to doing, then there is the turning of 21 and getting to legally drink adult beverages.

However there are other things like re-tiring that also mark a monumental moment in our lives, however no one ever explains to us what that is supposed to be like.

You are a smart, capable and good man, so I am sure you will have little difficulty adjusting to your new life of sitting on the front pourch, in the rocking chair, sipping your lemon aid and yelling at those bratty kids to stay off your damn lawn :)

So here's my list of shorts. I use these ETFs because it costs me money sometimes to borrow shares of stock to short. I'm never sure quite how much, it's ranged from a very tiny amount to around 5% of the value, and I don't know how to tell the borrowing cost before I short. Anyway, here's the shorts list that doesn't cost to borrow:

REW SKF SRS SDS FAZ RXD TZA SMN DUG QID DXD SSG TWM SIJ SEF SH

Today's winner so far is TZA, with a gain of 5%, followed by dug and twm at 3%.

Many of those etf's are leveraged, and not something to stay in, because the leverage works against you mathematically. But in the event of a downtrend continuation, some of these like SH could give short term profits.

I took my overnight profits on AAPL at the open. It's headed down to yesterday's close There's strong short-term support at 628, and if we get back down there (doubtful) I will re-enter full positions.

The publishers immediately settled. (maybe because of noises from Amazon). Since the publishers aren't responsible for end-user purchases, they really shouldn't set prices. This whole thing was to work-around Amazon's dominance in the ebook market, where they were taking a loss (paying the publishers more than they were getting from consumers.

I don't get this one at all. If the publishers don't get their money, they can sell on their own websites, or go to another website like Annie's to sell.

And, if Amazon threatens to blacklist a publisher's books, there are courts to settle that argument, as well. The problem may be that it could take too long to settle that.

I think it was Mannwich who observed that the big boys make the rules. And actually, ever was it so.

I can't figure out Amazon's business here. They were taking a loss on the Kindle, and now on ebooks. You can't take a loss forever.

@Rock: It seems that publicly traded companies with access to cheap loans they can roll over and the capital markets can now take losses (or fudge accounting) for nearly "forever". Or it seems that way anyway.